An analysis of milk pricing since the start of 2024 suggests local dairy processors are paying well above what can be achieved in returns from dairy commodity markets.

Those potential returns are assessed by the milk price index (MPI) published by the Ulster Farmers’ Union (UFU).

It is generally recognised that the MPI is a good indicator of market trends, but it comes with a couple of caveats. Firstly it estimates future returns from commodities in approximately six to eight weeks.

It also does not account for the cost of transporting milk off farm or a margin at processor level. Therefore, it is reasonable to deduct 3p to 5p/l from the published MPI to get an accurate estimate of future base milk price.

Out of sync

Throughout 2023, the MPI was relatively accurate at estimating milk price, particularly in the second half of the year.

From May to December 2023, the MPI averaged 33.03p/l. Factoring in a 3p/l deduction, the MPI was in line with actual base prices, which averaged 30.49p/l.

However, this year, the index has been out of sync. From January to June 2024, the MPI has averaged 35.22p/l while the average base price paid is 35.4p/l. It suggests processors have paid 3p to 4p/l above market returns in 2024.

Product mix

In reality, predicting actual prices is not straightforward. Firstly, there is the difference in product mix, with some processors less exposed to commodity markets than others.

For example, Dale Farm has long-established customers for cheese, while the likes of Leprino specialises in mozzarella and Strathroy primarily sells fresh milk into retail.

There is another factor currently at play and that is competition for milk between processors.

Milk production in the Republic of Ireland is down nearly 6% across the first five months of the year, yet production in NI is actually up 1.2% over a similar period.

With supply remaining robust and given our relatively flat production profile, it is of no surprise the likes of Tirlán might look to grow their milk pool in NI, paying a leading milk price in the process.